Oil's rout deepest in 16 years
By Jonathan Leff
SINGAPORE (Reuters) - Oil prices have fallen as much as $16 from their peaks, their steepest reversal in 16 years, in a correction that traders say may be harder to shake off than past setbacks in the market's four-year rally.
In real terms Brent has fallen $16.02 since it hit a high of $78.65 on August 8. This marks its biggest decline from peak to trough since prices fell from $40 in October 1990 after Iraq's invasion of Kuwait to $16 in February 1991, when U.S.-led ground forces expelled Iraqi forces.
Brent is down more than 20 percent from its peak, meeting the technical criteria for the start of a bear market.
U.S. crude has dropped nearly $15 to hit a near six-month low of $63.50 a barrel on Wednesday, a fall only a hair shy of those in August-November 2005 and October-December 2004. In those cases, oil made new highs five to eight months later.
In percentage terms there have been bigger stumbles on oil's recent ascent, propelled steadily higher since 2002 by the war in Iraq, soaring Chinese demand, constrained oilfield and refinery production, devastating U.S. Gulf Coast hurricanes, and most recently fears of a disruption to Iran's exports.
But some say this latest setback -- triggered by easing concerns on Iran, a weak storm season and a refocusing on healthy consumer nation inventories -- may prove more lasting.
"Even though we've retraced certain percentages similar to this, it definitely seems that the market is different now," says New York-based ABN AMRO broker John Brady. "Other times I saw (the corrections) leading to great buy opportunities, but I don't necessarily think that this time."
Technical analysts who study past price action for future direction, say the drop through the 200-day moving average last week and this week's fall below a three-year trend line -- intact since mid-2003 -- both send worrying signals.